00:00Oh, I'm excited about the next, say, decade, more than that, who knows, but the technological
00:04innovation that we do is unique to the United States. We take risk, we allow failure, and
00:08something good always pops out of it. And so AI right now, the latest lingo is AI is inflationary.
00:14Well, no, it's not. It's improving productivity, it's going to improve profitability, and it's
00:18going to create jobs. Years ago at C.J. Lawrence, working at ISI with Mr. Hyman, you used to write
00:25with a quill. You dip the quill into the pen. Now we've got all this social media. I would
00:32suggest that the modern social technology is amplifying the suffering out there, even as
00:39we have respect for real suffering that's going on. I'm not sure there's suffering from
00:44technological innovation. I started with a typewriter, not a quill, but I did quickly go
00:48to a computer, and the increase in personal productivity, corporate productivity was tremendous.
00:55There was destruction associated with it. There always is. But at the end of the day,
01:00we're unique when it comes to our ability to improve productivity. I've traveled around
01:04the world over the past six weeks, and people are really envious of what has been able to
01:10go on in the United States. American exceptionalism isn't dead. It's still very much alive and well.
01:14How about inflation in this country? So we do have, I'm just looking at retail gasoline prices,
01:19about $4.32, down from $4.50, $4.60. How much is inflation a concern of you at the moment?
01:27It's not, actually. We wrote this weekend that we think inflation is peaking. As you know,
01:32oil is down from $1.15, WTI from roughly $1.15 to $90-ish. Gasoline prices are probably peaking.
01:38Who knows where that's going, obviously geopolitically. But then under the hood,
01:41the core PCE deflator was up only 0.2%. Within it, you've got some bifurcation. Services are
01:47grinding a little higher. Some of the tech prices are also moving higher. But goods prices are
01:53slowing down, if not stalling out, if not actually declining. Tariffs are coming down. Walmart,
01:58as I mentioned earlier this morning, Walmart said they're going to use these tariff refunds to
02:04lower prices. You know, we really have too many retailers out there, too many retailers that
02:08really can't compete for that consumer dollar. Reminds me of in the old days, we got rid of
02:12Sears, Kmart, because they weren't competitive. And I think we're going through the same thing
02:16today. You've got a group of retailers that are winning because they can be competitive,
02:20focusing on productivity, better priced products for their consumers. And then you have a whole
02:23bunch of retailers who really can't compete. We're probably going to see a shrinkage in the
02:27retail space over the next several years. Kevin Warsh, you've got the job you wanted.
02:33You've got presumably some guidance from your president. But boy, the data doesn't suggest
02:38that you do much right here. What do you think this Fed's going to do here?
02:41Oh, you know, the key for the United States, and we had our mistake back in the late 60s and
02:4570s,
02:46that the Fed must maintain its independence. And I think everybody involved understands that.
02:51The bond market will, you know, rear its head if that's not the case. And so it'll be very
02:55counterproductive. We saw that in 1969 with William Achesney Martin, where he acquiesced to
03:01President Johnson unwillingly, but he did. Bond yields soared. And the Fed then had to step up
03:07because inflation was a problem. You don't have the inflation ingredients today that you had back
03:11in the 60s and 70s. The foundation of the Orzeg, Pozen call for higher rates, so far they look like
03:18geniuses, is not a wage spiral, but a lift in wages due to inflation. Are you observing that?
03:26Are you observing a nominal wage lift?
03:29Not yet. Wage inflation, we're still early cycle when it comes to the labor market.
03:35I think Peter and Adam would agree with you on that.
03:37And it takes time for wages to reaccelerate. But over the next five years, I will be very bullish
03:42on not just nominal wage gains, but real wage gains. That's what a productivity tech cycle does.
03:48It raises profit margins, lower inflation, and you raise real wages. And so I think you have to
03:55differentiate between nominal and real. We've seen this. We saw it under Reagan. We saw it under
04:00Clinton. And I think we're going to see it. We started to see it last cycle. And I think we're
04:04going to see it. You have to stay focused on real wages. So I would agree we don't need a
04:09lower
04:09interest rate environment. I correlate nominal GDP with interest rates all the time. And nominal GDP is
04:16is five and a half, six. And you don't need lower interest rates. Look where we are, despite the
04:21fact that we've stopped cutting interest rates. But then it's also important to remember the Fed
04:28did cut rates 175 basis points. It takes one to three years for that to work its way through the
04:32system. I've got incredible fiscal support to the tune of 2 percent of GDP, obviously incentives to
04:38invest, tariffs, and then tax cuts for the consumer and corporations. But I've got enough stimulus to
04:45keep things going. And I've got an incredibly productive private sector.
04:49AI. What does it mean for the labor market? Torsten Slock is out with a note today saying,
04:54yeah, it creates jobs. It's not going to destroy jobs. How do you think about that?
04:59I mean, I've been on that theme forever. I mean, I've lived it in my career. I've seen it in
05:04my
05:05career. That's what makes the United States unique, that we allow creative destruction. So yes,
05:11you will destroy some jobs. Always happens when you have new technology. And you will create new
05:15jobs, which you always have when you improve productivity and profitability and have high
05:20corporate profit, high corporate profit margins. Europe doesn't have that. Japan didn't have that
05:26in the 90s. Europe, I mean, they missed tech, just broadly defined. It seems like they're going to miss
05:32AI, broadly defined. I'm just shocked at that. I mean, it's just... Well, the government policies
05:37aren't conducive for, and the culture isn't conducive to risk, innovation, and supporting
05:43profit margins. We're going to go here, but your first comment is vital. We allow failure.
05:50Yeah. Will we see... What will be the character of failure in AI?
05:56As we saw under the internet in the 1990s, you threw a bunch of companies in the mix,
06:01and you ended up with much, much fewer. And different, like combinations taken at a huge loss.
06:08Transactions, actual bankruptcies. It's... Oh, for sure. I mean, every news cycle, you saw it during
06:14the automotive age. You've seen it historically in this country. But again, that's what makes us unique.
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